The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) has deleted the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 holding that the Tax Deducted at Source (TDS) is not applicable on the discount allowed to retailers by the distributors on sale of prepaid sim cards or mobile recharge card.
The sole issue involved in this appeal was as to whether Tax Deducted at Source (TDS) was liable to be deducted under Section 194 of the Income Tax Act on the discount allowed to retailers by the assessee, Sabirul Islam dealer/distributors on sale of prepaid sim cards/mobile recharge cards and whether the lower authorities were justified in making disallowance under Section 40(a)(ia) of the Income Tax Act on account of non-deduction of TDs on such discount given by the assessee to the retailers on sale of sim card/recharge coupons.
The two-member Bench of Sanjay Garg, (Judicial Member) and Manish Borad, (Accountant Member) noted that this issue was squarely covered by the recent decision of the Bombay High Court in the case of ‘Commissioner of Income Tax (TDS), (Pune) v. Idea Cellular Ltd.’ whereby, the Court observed as when the transaction was between two persons on principal-to-principal basis, deduction of tax at source as per Section 194H of the Income Tax Act, would not be made since the payment was not for commission or brokerage.”
In Commissioner of Income Tax (TDS), (Pune) v. Idea Cellular Ltd, the Assessing Officer had observed that the discount allowed to the distributors by the Respondent assessee company was on account of principal-to-principal relationship and not that of principal to agent.
The Tribunal in that case followed the decision of the Karnataka High Court in the case of Bharti Airtel Ltd. v. Dy. CIT and held that the sale of SIM cards/recharge coupons at discounted rate to the distributors were not commission and therefore not liable for deduction of the TDS under Section 194H of the Income Tax Act. The Tribunal also had noted that there was no decision of this Court on this issue on that date.
Sonam Bajoria, appeared on behalf of the assessee Sudip Bandyopadhyay, appeared on behalf of the revenue.
However, the Bench allowed the appeal filed by the AO observing that in the present case the assessee was a distributors/dealer and had sold the sim card on discounted rate to the retailers and the relationship between the assessee and retailers was not of principle agent, rather, the same was principle to principle basis.
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